Preparing for an Exit - Take the Value Creation Assessment TM

 [Editor’s Note: Many business owners are busy running the business and do not take the time to prepare for an exit. Often, they do not even think about it until they receive an unsolicited offer from a prospective buyer. Business owners who have prepared for an eventual exit typically have a smoother transition and receive a higher value for the business. - dpm]

Preparing for an Exit - Take the Value Creation Assessment TM

An offer comes out of the blue. A company in your industry, whom you may have known for years, contacts you with an offer to buy your business and states that they can close in 30 to 60 days. What's next?

If it seems too good to be true, it likely is. History tells us that "one buyer offers" with promises of a fast close - for a company that was not prepared -wind up stretching out for many months, often with changes in the purchase price offer, and consuming lots of the seller's time and resources - only to end in a broken deal. Or...the offer is significantly less than the seller could realize with additional prospective buyers.

Businesses can operate for many years in a somewhat informal manner with handshake agreements, employees with tribal knowledge of process, etc. Many business owners are surprised when they learn that you can't sell an "informally run" business for a premium price.

What determines the value of a business... to others?

• Solid performance history.
• History of improving revenue and cash flow.
• Capable management team.
• Strategic growth opportunities.
• Documented repeatable processes.
• No "gotchas" (no surprises during due diligence).

Surprises will cost you. Buyers hate surprises. When a buyer discovers something during due diligence (issues with financials, issues with customers or suppliers, issues with employees, etc.), it causes them to look deeper, wondering what else they might discover that was not disclosed. This potentially breeds distrust and often results in a change to the offering price.

Identifying and resolving issues in advance saves money, time, and leads to a cleaner, more productive transaction. Identifying potential issues in advance allows the company time to resolve them over time, at lower cost...and a lot less stress. For example, it can take time to clean up contracts with customers and suppliers, resolve issues with financial statements, etc.

We can help. Take the Value Creation Assessment TM. For over two decades, The Mead Consulting Group has been working with companies to assess their preparation for a potential sale, identify issues and recommend corrective actions. Investment bankers and buyers have remarked that companies that have gone through this process are the best prepared that they've worked with. We help companies routinely go through this assessment in several days. Then they can be armed with detailed action plans to be best prepared.

For more information on the process to unlock maximum value, please contact me at meaddp@meadconsultinggroup.com or (303)660-8135.

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Steps to Best Prepare Your Company to Borrow

Preparing your company to borrow involves several steps to ensure financial stability and credibility and enable a smooth borrowing process.

1. Assess Company's Financial Condition: Conduct an in-depth analysis of your company's financial statements, including cash flow, profit and loss, and balance sheets. Ensure financial records are accurate, up-to-date, and reflect the true performance of your business.

2. Develop a Solid Business Plan: Create or update your business plan, outlining your company's objectives, target market, growth projections, and strategies for success.

3. Understand Borrowing Needs: Determine the specific purpose and amount of funds you need to borrow. Whether it's to purchase new equipment, expand operations, or cover operating expenses during slow periods, having a clear understanding of your borrowing needs is essential.

4. Strengthen Creditworthiness: Strengthen your company's creditworthiness by maintaining a positive credit history, paying bills on time, and reducing outstanding debts.

5. Prepare Documentation: Prepare and organize necessary documentation, including financial statements, tax returns, business licenses, and legal documents.

6. Research Lending Options and Establish Relationships with Lenders: Research types of lenders (banks, non-bank lenders, asset financing, etc.). Cultivate relationships with potential lenders by networking, attending industry events, and seeking recommendations from other business owners and outside consultants. Building rapport with lenders can improve your credibility and increase the likelihood of loan approval.

7. Create a Loan Proposal: Develop a loan proposal that highlights your company's strengths, borrowing needs, repayment plan, and how the borrowed funds will benefit your business. This can increase your chances of securing financing on the best terms.

8. Review and Negotiate Terms: Review loan terms, including interest rates, repayment schedules, fees, and penalties. Understand if personal guarantees are necessary and those terms.

9. Establish and Maintain Good Communication with Your Lender: Remain in regular communication with your lender throughout the borrowing process. Respond to any concerns or questions promptly and provide requested information in a timely manner. Maintain good communication with lender throughout the term of the loan.